IIMB News
IIMB doctoral scholar Ankitkumar Kariya’s paper titled, ‘Borrowing from government-owned banks & firm’s liquidation risk’, published in Journal of Corporate Finance.
Abstract: Government-Owned Banks (GOBs) have other explicit or implicit objectives apart from profit maximization. In this paper, I study whether this affects the liquidation risk of firms borrowing from GOBs. Using the natural experiment of securitization reform in India that increased firms’ liquidation risk, I find that the firms borrowing exclusively from GOBs did less reduction in secured debt usage compared to other firms. In the cross-section, the effect is more substantial in the subsample of firms that are more likely to face financial distress. These results suggest that borrowing from GOBs have less liquidation risk.
